The UK's national output fell by 0.3% in the fourth quarter, according to the Office for National Statistics.
The contraction of gross domestic product (GDP), which was worse than most forecasts, compared with a 0.9% rise in the previous three months.
Britain now appears closer to its third recession in four years, or the so-called triple-dip recession.
GDP is seen as the broadest measure of a country's economic output, and the figure undergoes regular revision as more data reaches statisticians.
The ONS said GDP contracted partially because of lower output from North Sea resource producers and manufacturers.
Mining and quarrying also suffered its biggest fall in output since records began in 1997.
Quarries supply a range of other sectors such as construction, railways and road-building - which includes repairing potholes.
The figure now raises more concerns over the economic policy of the coalition Government.
On Thursday it defended its austerity programme against criticism from the International Monetary Fund's chief economist.
Chancellor George Osborne said he would not "run away" from the problems facing the UK economy, insisting: "We have a reminder today that Britain faces a very difficult economic situation.
"Now, we can either run away from those problems or we can confront them - and I am determined to confront them so that we can go on creating jobs for the people of this country."
Meanwhile, shadow chancellor Ed Balls accused the Prime Minister and Mr Osborne of being "asleep at the wheel".
He said: "Today is the moment when David Cameron and George Osborne's complacency is completely exposed.
"These deeply disappointing figures expose just how dangerously complacent the Prime Minister was when he said last autumn that the 'good news will keep coming'."
The economy is now 3.3% smaller than at its peak in Q1 2008, recovering only about half the output lost during the financial crisis - a worse performance than other major economies.
The disruption to North Sea oil and gas fields was partially attributed to a maintenance programme which saw the shut-down of certain key pumping infrastructure.
This knocked 0.18% off GDP, while slightly smaller amounts of damage were done by a fall in factory output and in the "Government and other services" category.
In the third quarter this sector was boosted by the London Olympics effect on sports and recreation services.
At the start of 2013, one-off factors, such as January's snow, may seal the fate of an economy on a knife-edge between growth and contraction, with major retailer John Lewis already warning that snow had hit sales growth.
But some experts believe the country can still avoid the feared return of recession.
Experts on the Sky News Money Panel had mixed feelings on the results and risk of triple dip, ahead of the results.
Ross Walker, UK economist at RBS Global Banking & Markets, said: "I think a formal triple dip will be narrowly avoided.
"The early signs of chaos around the January snowfall threatened to tilt the balance of risks the other way, but anecdotally the disruption to the wider economy does not seem as bad as initially feared."
James Daley, money editor at Which?, added: "It's quite possible that Britain is heading for a triple-dip recession - though I think the importance of this could be overplayed.
"The economy has effectively been flatlining for almost four years now - with the odd quarter or two of growth quickly offset by a few quarters of contraction.
"Sadly, there are still no green shoots of recovery, and with many of the public sector cuts still working their way through, 2013 looks set to be another tough year for consumers."
Asked how the retail sector could be improved, Louise George, from Peter Popple's Popcorn, said: "(The Government) could offer more funding and support for small and medium-sized enterprises (SMEs).
"So that they are able to grow their businesses and are able to offer lower prices to consumers through economies of scales of having more cashflow."
Anthony Thomson, the founder and former chairman of Metro bank, also warned of the disparity between SMEs and large firms.
"We continue to be a two-speed economy in the business sector. Small businesses are still keeping their heads down and hoarding cash," Mr Thomson said.
"There is credit available for them if they want it but they are being very cautious. Big businesses are using the incredibly low interest rate environment to tap the bond market, bypassing traditional bank lending."